Feature
SMALL CUES CHANGE
SAVINGS CHOICES
By Gabriel Potter, AIF®
I
n the financial industry, we hear
dire warnings often. Pensions
are significantly less common
for new employees and existing
pensions are already under threat.
Social Security protection is expected
to ultimately shrink for all Americans.
Given these additional burdens, most
employees still aren’t saving remotely
enough for their own retirement with
their personal savings or through
company sponsored retirement plans,
like a 401(k).
The fiduciary standard for plan sponsors
may expand to include outcome-based
measures. In other words, creating an
investment lineup with a prudent set
of options for employees may not be
enough. Instead, actively encouraging
a secure retirement for your employees
may become the new standard. So, what
else can plan fiduciaries do to persuade
their employees to change their saving
habits?
16 | WINTER
18
SUMMER
2014
2013
Finally, some good news about
retirement planning
We’ve read an interesting article on this
very dilemma which suggests that small
changes in employee communications
can directly impact savings rates. More
specifically, a simply tailored message
emailed to employees about their 401(k)
savings plan can prime them to increase
or decrease their contribution rates. A
whitepaper, written James Choi of Yale
University and NBER, describes an
experiment with tailored email messages
designed to influence employee savings
behavior.
A useful experiment
The field experiments tested nine
separate cues—embedded in mostly
identical emails to control and experiment
groups. They determined some cues
were only temporarily effective, but
some presented long term progress at
least one year after the study.
The nine cues were in three groups:
Anchor, Savings Goals, and Savings
thresholds. Anchor cues suggested a
contribution rate for employees. For
instance, “you could increase your
contribution rate by 1% of your income
and get more match money for which you
are eligible.” Savings Goal cues posited
statements like, “contribute $7,000 for
the year and you attained it. You would
earn $500 more in matching money
this year than you’re currently on pace
for.” Finally, Savings Threshold cues
could quantify the amount of allowable
savings, and sometimes demonstrate the
gain for an employee. For example, “The
next $1500 of contributions you make
between now and December 31 will be
matched at a 100% rate.”
In short, the study determined that
presenting targets or goals above a likely
existing savings range had an effect of
pulling-up the behavior of employees.
In their words, “High savings cues